Navigating Economic Uncertainty: Follow the Ad Spend Trends and Stay Flexible

2022 continued the (sometimes unpleasant) pattern of being an unprecedented year in many ways for the advertising industry. As a result, here are a few considerations that marketers, publishers, and agencies should pay close attention to in 2023.

The Impact of More Inventory

Last year introduced a huge influx of video ad inventory with the launch of new ad-supported CTV platforms including Netflix and Disney+’s long-awaited ad-supported tiers. Additionally, other streamers are now bringing ads to existing content: Warner Bros. Discovery’s HBO Max announced plans to run ads in HBO originals, reversing its long-standing policy of keeping original content ad-free. 

This trend is being largely driven by consumers who are drifting away from some of their CTV subscriptions and increasingly preferring ad-supported free content. According to a recent survey from LG Ad Solutions, 76% of US consumers express that they will trade off less expensive subscriptions for ad inclusion with 80% of US consumers already using ad-supported models of CTV.

In fact, 25% have added a free ad-supported CTV service over the last year and 23% are planning on adding one or more in the next year. The opportunity is clearly ripe for advertisers on AVOD. But it doesn’t come without challenges. 

As AVOD continues to grow in 2023, the ecosystem will need to contend with how this new inventory will further change the overall TV and streaming landscape especially when it comes to CPMs. Typically, with more inventory available, pricing drops. 

Looking at average CPMs from June 2021 to May 2022, streamers netted a CPM between $15-$50 depending on the service and what exclusive content they offered. Will the influx of inventory make it harder for streamers to produce new content in 2023? We’ll see as the year progresses and the new AVOD tiers/platforms hit their strides.

Flexibility is Key for Survival

A key theme for the past several years has been economic uncertainty, and 2022 wasn’t any different with inflation concerns, raising interest rates, mass layoffs, and conversations about a potential recession. 2023 will see this continue, especially as we approach August and the potential for the United States to default on its debt. 

Despite this doom and gloom, there are positive signs we’ll come out of it, as we always have. In the meantime, as we navigate this economic turmoil, there are different considerations for each side of the ecosystem. The buy side will require flexibility from their partners in making investments, which gives digital media an upper hand as they can more easily provide that than traditional media. 

In 2023, the sell side must work hard to try to make that flexibility easier for their clients to maintain the relationship and see sustained revenue. On that same note, as buyers look for more flexibility this year, we’ll see a growth in DSPs and programmatic player adoption. 

Change in Ad Spending Patterns 

The end of 2022 saw several new ad spend patterns. First, after a decline in spend for much of the year, Black Friday/Cyber Monday ad spend numbers were back to pre-pandemic figures this year. This begs the question: did advertisers just save up to spend on that date? We’ll have to wait until the next holiday season to see if the distribution of ad dollars skews that way again. 

Additionally, for the first time since July 2020, digital investment entered negative territory at -4% YoY in November. Search sites played a key role in this decline, with ad spend falling -24% YoY. In its place? The rise of Retail Media. 

Is any of this a fluke, or will these be ongoing patterns that we need to adjust our strategies for? 2023 will begin to answer that query after several years of pandemic and post-pandemic recovery. 

As we continue into the new year, wise advertising players will focus on flexibility while keeping a close look on changes in CTV CPMs and ad spend patterns to ensure that they can ride the wave of a potential recession while still furthering their business goals. 

Here’s to a successful 2023 — a year I hope we will finally return to “normal” or at least business as usual.

Darrick Li is VP, North America, Media Owners, at Standard Media Index.